Interest rates are not something you can easily escape. They are a part of every financial transaction when you need to use credit. Very few businesses and financing programs offer 0% interest credit, which is why you need to become interest rate savvy. Indeed, you want to keep your rate as low as possible when you need to borrow money. Ultimately, the higher the rates, the more you will have to pay. When you think about it, it’s the equivalent of someone lending you a car for a day, and then expecting you to give back the car along with a brand new motorbike as compensation. This might sound crazy, but in essence, it’s what you do when you accumulate payments with interest rates. So, here’s what you want to keep in mind to free your finances from rates’ impact.
Prioritize high-interest bills
By the end of 2017, according to statistics, Americans accumulated on average $6,354 debt on their credit cards. As curiously as might sound, a lot of households have been working hard throughout the pandemic to cut down their credit card debt. Therefore, at the start of 2021, the average credit card debt stands at $6,270. Nevertheless, credit card debts are a significant burden on your budget as interest rates make it tricky to pay off. Approximately 4 in 10 Americans carry a balance each month and fail to reduce their debt. Financial experts recommend tackling debts independently by interest rates rather than amount, as this can free up a considerable budget in the long term.
Compare mortgages
Finding a bank you can trust is no easy task. But it doesn’t mean that you shouldn’t compare the services you receive from your bank with other institutions. Indeed, it doesn’t harm to hunt for the lowest mortgage rates on the market, even if those are not offered by your bank. You can make your task easier by reaching out to professional mortgage brokers who can find deals that are suitable for your unique situation.
Don’t be afraid to refinance an existing loan
An existing loan can be improved through refinancing. Refinancing means that you replace your existing loan with a new one. Typically, you would opt for refinancing when your financial situation has changed so that you can obtain a lower interest rate. Lenders suggest that 1% savings can make a big difference. However, financial advisors prefer to focus on securing 2% or more on your interest rates before refinancing.
Be careful of spread payments
Paying in installments is one of the most confusing financial tricks for customers. Most customers understand the importance of installment payment, as it enables them to commit to a big purchase without affecting their budget. If you are buying a brand new sofa, for instance, it can be helpful to reduce financial pressure by spreading out the costs. However, installments tend to include interest rates, which means you end up paying more than the actual price tag. As a rule of thumb, savvy interest rate management would suggest paying in full whenever possible. But budget best practices prevent significant expenses.
Interest rates are a necessary evil in the financial world. They are a waste of money, but it’s a waste that can be managed strategically. You can target interest rate payments rather than borrowed money payments to reshape your debt management plan for the better.